[ C O V E R
mise solutions to satisfy investors who
want highly detailed ILPAs, and those
preferring more concise submissions.
This inevitably creates more work for
the manager.
“Managers are building their own
version of ILPAs to provide to their
diverse client base. Large institutions
want detailed ILPAs whereas smaller
clients do not. Managers generally do
not provide individual ILPAs to clients
but provide a single version for all LPs,”
says Melanie Cohen, global head of pri-
vate equity and real estate at Deutsche
Bank Fund Services.
Adjustments to private equity
reporting is also a direct result of the
evolving investing model. Histori-
cally, an investor would have either
allocated directly into a private equity
manager, or done so indirectly through
an investment consultant or a private
equity fund of funds. This is changing,
as clients co-invest with their managers
on certain transactions, presupposing
they can net fee discounts and higher
returns.
“Larger investors are increasingly
co-investing because they want a bigger
slice of the returns, and greater influ-
ence on how the portfolios and deals
are structured,” says Chirag Patel, head
of innovation and advisory solutions for
EMEA at State Street Global Exchange.
But with institutions now using
multiple structures and methods to
invest into or in parallel with private
equity, managers face new challenges,
with 28% of respondents telling the EY
survey that co-investment demands
were the biggest complicating factor in
their businesses.
“As an administrator, we are seeing
the larger investors go direct to deals,
or co-invest alongside the manager,
which means reports have to be more
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tailored. With significant sums of cap-
ital involved in co-investments, the re-
porting demands can be equally high,”
says Cesar Estrada, head of product
management for private equity and real
estate fund services at State Street AIS.
With private equity assets growing
off the back of institutional money and
co-investment becoming an increas-
ingly popular device for allocators,
it is harder for managers to run their
enlarged businesses using manual pro-
cesses and legacy systems. In response,
managers are resorting to employing
third parties, who have the technology
and scale.
New alternatives: Thinking outside the box
Sky-high valuations are prompting
buy-out firms to consider new sources
of income. Since 2013, there has been
an increase in private equity (and
hedge funds) engaging in credit, which
may include direct lending, distressed,
mezzanine, special situations and ven-
ture debt. The driver has been banking
reform, namely Dodd-Frank, Basel III
and the Volcker Rule, which has led to
“Larger investors are increasingly co-
investing because they want a bigger
slice of the returns.”
CHIRAG PATEL, HEAD OF INNOVATION AND ADVISORY
SOLUTIONS FOR EMEA, STATE STREET GLOBAL EXCHANGE.
The Private Equity Issue 2017
globalcustodian.com
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